When a party seeks to obtain sensitive but otherwise discoverable information from its opponent, courts occasionally are asked to consider whether a new privilege should be recognized in order to shield the information being sought. In recent years, however, courts have shown an extreme reluctance to create new privileges. The Federal Circuit reinforced this trend on April 9, 2012, when—in a precedential order—it refused to recognize a privilege being proposed for patent cases that would have prevented discovery of litigation settlement negotiations.
The case, In re MSTG, Inc., No. 11-M996 (Fed. Cir. Apr. 9, 2012), involved patent-infringement allegations relating to “3G” mobile telecommunications technology. It was brought by MSTG against AT&T Mobility and several other providers. MSTG subsequently entered into settlement agreements with the other providers, licensing its patents to them. As the litigation with AT&T continued, the settlement agreements themselves were produced to AT&T, but AT&T also sought discovery of information relating to the negotiation of those agreements. AT&T reasoned—and the court agreed—that, if infringement were to be found, settlement negotiation information could be relevant to the valuation of any royalties owed by AT&T.
MSTG unsuccessfully urged the Federal Circuit to fashion a new privilege to prevent disclosure of its settlement negotiations. Turning to the court’s refusal to do so, several points bear noting:
- The court rejected the view that it was sufficient to produce the settlement agreements themselves without producing underlying negotiation information. It observed that the underlying information could be relevant, at least in this case, for purposes of assessing whether “litigation related compromises” influenced the dollar amounts settled upon in licensing the patents.
- Relatedly, while this decision holds that a specific privilege protecting settlement discussions does not exist, it does not limit the inherent power of courts to “exercise appropriate control over the discovery process” to “prevent abuse.” Here, the court found that the potential relevance of the information outweighed the discovery concerns raised by MSTG, but the scope of permissible discovery can vary on a case-by-case basis.
- This decision may not apply to negotiations that occur during formal mediation. State laws and local rules often afford specific privacy protection to such proceedings.
- This decision should also not be confused as affecting Rule 408 of the Federal Rules of Evidence, which limits the admissibility of settlement negotiations. The question before the court here was the discoverability of such negotiations under Rule 26 of the Federal Rules of Civil Procedure, and not their admissibility at trial.
- Finally, nothing here abrogates traditional attorney-client privilege or attorney work-product protection. To the extent that either of these protections applies to particular settlement negotiation information, that information remains privileged (absent waiver).
Of course, the Federal Circuit’s decision not to recognize a privilege for settlement negotiations is not binding across all circuits, and its analysis is driven, in part, by considerations unique to patent cases. By comparison, the Sixth Circuit previously adopted such a privilege (Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976 (6th Cir. 2003)), although it appears to be the only circuit to have done so. Nevertheless, the Federal Circuit’s decision in In re MSTG, Inc. is the most recent, and it falls in line with other cases in which federal courts have refused to recognize new privileges. Accordingly—whether in the patent context or otherwise—it would be prudent to assume that any settlement negotiations that you engage in could be discoverable in pending or subsequent litigation.